Spotify CFO on Apple: ‘It’s not a software culture: it’s a hardware culture’


Spotify’s chief financial officer Barry McCarthy delivered a blunt rejoinder to a question about the threat posed by big-tech rivals like Apple, during his interview at Goldman Sachs’ Communacopia conference on Friday.

“I don’t think anybody is making a bigger investment in tech required to be successful in our business than we are,” he said, before talking about the time, in his previous job at Netflix, when an announcement that Wal-Mart was getting into online video sent Netflix’s share-price plummeting.

“Wal-Mart never had more than three people working on home video. They could have been the world’s largest player, but they weren’t,” said McCarthy. “Apple has more than three people working on music, but they have considerably fewer people working on music than we do. And they have fewer engineers still, and it’s not a software culture: it’s a hardware culture.”

McCarthy admitted that Apple’s iPhone ecosystem is a “competitive advantage” over Spotify, but said his company’s strategy is “to build a bigger ecosystem in total than their phone, with partner companies like Samsung, Microsoft, and the Android operating system – which is substantially bigger outside the United States than iOS… and have our success across those platforms enable us to compete. If we do that well, I think our business will prosper. If we don’t? Roadkill.”

McCarthy also jabbed at Amazon – “They don’t really care how engaged you are in the music service as long as you become a Prime subscriber… If all you care about is price, you don’t really care about the music, they probably look like a pretty good value proposition to you” – and suggested that smaller music-streaming services face a murky future.

“It’s fair to say at this point, if you’re relatively small and undercapitalised, it’s kinda game over for you. Even if you haven’t figured it out yet. It’s a scale business,” he said.

Other titbits from McCarthy’s interview, which has been made available in full at Spotify’s investor website:

:: Around 200,000 artists are using Spotify’s artist platform, and they account for around 70% of streams on the service, with the other 2.8m artists on the service accounting for the other 30%. “2.8 million who are struggling to be discovered…” He also suggested that touring revenues remain the goal for many artists here. “Artists make almost all of their money from touring, so the value of a digital service is it builds an audience, and then they [artists] monetise the audience, in today’s market, with touring.”

:: On Spotify’s relationship with labels: “We’re not trying to be a label, and we’re not trying to compete with the labels. We have what I would describe as a co-dependent relationship. There are three labels who own most of the marketplace, and they have oligopoly power, and we can’t be successful without them as partners. [But] with 180 million users growing at 30% year-after-year last quarter… we have driven all of their revenue growth, and they can’t be successful without us as business partners. It’s important for both of us that we never allow the relationship to become a zero-sum game.” McCarthy also looked ahead to Spotify’s next round of licensing renewals with the major labels. “I would say if you’re a drama queen, knock yourselves out! It’s going to be a great show… Part of the way the labels communicate with each other without violating anti-trust laws is through the media. Wew would do the same thing: it makes a ton of sense…”

:: Spotify’s CFO continues to push back on suggestions that the company should raise its long-time $9.99-a-month subscription cost for western markets, even though labels are keen. “They do want to see it grow, and I don’t. And as an investor you shouldn’t. I think it’s one of the really dumb questions,” said McCarthy. “What you want is revenue to grow, and you should want our market share to grow… If you want to tip broadcast-radio, make it [streaming] a better service. Stop trying to make it worse… stop trying to raise the price.”

:: McCarthy pitched for freemium streaming to kill broadcast radio. “The 20-year trend here is linear dies, everything on-demand wins. Instead of free / paid, it’s paid plus free, and free eats broadcast radio… I don’t know what happens to news and I don’t know what happens to sports, but for sure, the combination of your phone plus a voice-activated interface enables the car, and the car is the principal user experience for broadcast radio. Broadcast radio, SiriusXM are extremely threatened by the growth and evolution of streaming services.” He later described streaming as an “existential threat” to SiriusXM.

:: On competition: “The company with the most data wins. The company with the most data insights wins. The company with the engineering culture, software-driven business wins. And that’s the play we’re making.”

Written by: Stuart Dredge